Académique Documents
Professionnel Documents
Culture Documents
Financing Mix
17. The Trade off
18. Cost of Capital Approach
19. Cost of Capital: Follow up
20. Cost of Capital: Wrap up
21. Alternative Approaches
22. Moving to the optimal
Financing Type
23. The Right Financing
Investment Return
14. Earnings and Cash flows
15. Time Weighting Cash flows
16. Loose Ends
Dividend Policy
24. Trends & Measures
25. The trade off
26. Assessment
27. Action & Follow up
28. The End Game
Valuation
29. First steps
30. Cash flows
31. Growth
32. Terminal Value
33. To value per share
34. The value of control
35. Relative Valuation
1.
If
a
rm's
investment
policies
(and
hence
cash
ows)
don't
change,
the
value
of
the
rm
cannot
change
as
it
changes
dividends.
If
a
rm
pays
more
in
dividends,
it
will
have
to
issue
new
equity
to
fund
the
same
projects.
By
doing
so,
it
will
reduce
expected
price
appreciaMon
on
the
stock
but
it
will
be
oset
by
a
higher
dividend
yield.
If
we
ignore
personal
taxes,
investors
have
to
be
indierent
to
receiving
either
dividends
or
capital
gains.
Underlying
AssumpMons:
(a)
There
are
no
tax
dierences
to
investors
between
dividends
and
capital
gains.
(b)
If
companies
pay
too
much
in
cash,
they
can
issue
new
stock,
with
no
otaMon
costs
or
signaling
consequences,
to
replace
this
cash.
(c)
If
companies
pay
too
liQle
in
dividends,
they
do
not
use
the
excess
cash
for
bad
projects
or
acquisiMons.
0.00%
Assume
that
you
are
the
owner
of
a
stock
that
is
approaching
an
ex-
dividend
day
and
you
know
that
dollar
dividend
with
certainty.
In
addiMon,
assume
that
you
have
owned
the
stock
for
several
years.
Initial buy
At $P
Ex-dividend day
Pb
Dividend = $ D
Pa
Pb Pa 1 t o
=
D
1 t cg
7
IntuiMve
ImplicaMons
8
The
relaMonship
between
the
price
change
on
the
ex-dividend
day
and
the
dollar
dividend
will
be
determined
by
the
dierence
between
the
tax
rate
on
dividends
and
the
tax
rate
on
capital
gains
for
the
typical
investor
in
the
stock.
Tax Rates
1966-1969
Ordinary
tax
rate
=
70%
Capital
gains
rate
=
28%
Price
change
as
%
of
Dividend
=
78%
1981-1985
Ordinary
tax
rate
=
50%
Capital
gains
rate
=
20%
Price
change
as
%
of
Dividend
=
85%
1986-1990
Ordinary
tax
rate
=
28%
Capital
gains
rate
=
28%
Price
change
as
%
of
Dividend
=
90%
10
11
12
13
14
35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
-4
-3
-2
-1
15
1.00%
0.00%
1962-1974
1975-1987
1988-2000
-1.00%
-2.00%
Dividend
Increases
Dividend
Decreases
-3.00%
-4.00%
-5.00%
-6.00%
0.5!
0!
t:-! -12! -9! -6! -3!
-0.5!15!
0!
3!
6!
9! 12! 15!
CAR!
-1!
-1.5!
-2!
Day (0: Announcement date)!
18
Task
Examine
the
trade
os
on
whether
your
company
should
be
paying
more
or
less
in
dividends.
19
Read
Chapter
10